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Before you do anything drastic, read this

Thursday, 23 April 2020 12:33 PM | Strategy and process

Image of Before you do anything drastic, read this

What are the long-term questions for leaders who need to make good short-term decisions?

In Wizard and Glass, Stephen King makes the point that “panic is highly contagious, especially in situations when nothing is known and everything is in flux.” Panic can spook teams, businesses, markets, countries—even the world economy. And it is highly conducive to bad decision-making.

A dramatic reduction in spend is a common knee-jerk reaction amongst organisations who have fallen prey to panic contagion. Cost-cutting might actually be the right thing to do: assessing and reducing exposure can limit corporate risk and be essential for the preservation of the enterprise. But the question that rarely gets asked – or answered with sufficient rigour – before cuts get made is this: “how are we positioning our organisation to flourish once we’re through this?”

At one level, this oversight is understandable. The author Nicholas Nassim Taleb defines a “black swan” as an unpredictable event that is beyond what is normally expected of a situation and which has potentially severe consequences. The problem with black swans lies in their unpredictability: they tear up assumptions about how the world works, and so give rise to self-doubt. As a result, corporate behaviour ends up being informed by implicit questions such as, “what’s the point of planning for the future if the world is so unpredictable?”

But such questions ignore basic principles that have always underpinned good business management. Let’s look at an example from our own practice. When times get tough, we tend to see clients following the same patterns in budgeting – with marketing spend almost always first in line for deep cuts. But reductions in marketing budgets diminish an organisation’s ability to communicate with the very people whose positive sentiment (and cash) it relies on, right at the time when communication might be highly valuable to those people.

In downturns, smart businesses focus on relationships over revenue; an organisation that reduces its ability to communicate is sending a signal that the relationship is fundamentally one-sided and transactional. This can damage both the brand and, over time, the company’s commercial performance: businesses that don’t engage their customers don’t remain salient, and might struggle to remain in the consideration set for future spend.

Making cuts can feel easy – it is usually far simpler to destroy than to build. But making cuts in a way that is sensitive to how the future might play out is far more difficult. This is especially the case when people are in panic mode. But the fact that forward planning is challenging does not excuse leaders from the responsibility to do it.

So, what are the long-term questions for leaders who need to make good short-term decisions? Here are three of the best.

How do we expect this period to influence customer demand?

Black swans have a habit of fundamentally altering how people think and feel about the world around them. At times of change, the best leaders will consider what impact these needs and emotions are likely to create. They might influence, say, the nature of the relationships that consumers seek with brands, or which product and service offerings are in demand. If making such predictions feels about as credible as astronomy, it is worth noting that history contains clues. To provide just one example, seismic global shocks like world wars or pandemics have tended to usher in periods where individualism takes a back seat to collectivism.

The answer to the question of consumer demand can influence everything from product and service innovation to the organisation’s communication strategy. It might stop leaders making cuts to certain projects or teams, or even promote judicious investment in low-level, fail-fast experimentation.

Which competitors do we expect to re-emerge most strongly?

Black swans can kill competition – particularly at the weaker end of the market. One consequence of this is that the strongest competitors tend to get even stronger: market share is up for grabs, and they have the resources to be able to grab it.

This also means that the period after the panic has subsided and things start to pick up tends to be fraught with danger. The best leaders understand this, and will have considered in advance how to maximise advantage in the face of significant competitive aggression.

The answer to this question can influence short to medium-term sales strategy, marketing strategy and even product and price positioning. It can refocus leaders on value creation, and stop cuts to activities that are focused on the creation of long-term competitive advantage.

What organisation have we always been trying to build?

Scaling down should not mean sacrificing an organisation’s vision, mission or values. In the clamour to conserve, a big danger is that leaders lose sight of their long-term goals and the principles that are supposed to underpin how they do business.

For example, if you have spent years professing to run your business in a way that is people-first, you do irreparable damage to your reputation by making your people first in line for the chop when times get tough – if other options are available to you. (Such behaviour brings to mind the old Groucho Marx quote: “those are my principles, and if you don’t like them...well, I have others.”)

Understand: your values are the things that cost you. The best leaders remain connected to this, and use them as a guiding light while remaining focused on the fulfilment of their vision and mission. Keeping grounded in this way can prevent painful and counterproductive cuts that destroy the morale of employees and their belief in an organisation’s purpose.

Black swans linger long in the memory. How you treat your people when the going gets tough has a huge bearing on how they will treat you when things get back to normal – as they must, and always do.

Phil Lewis is Founder of Corporate Punk, working with leaders who know that adaptable organisations win.

Phil is leading his next webinar for us on Thursday 30 April, What would Bruce Lee do? Lateral thinking to build your business. Book your place here.

For a complementary strategy conversation with Phil, check out the exclusive offer here.